United Kingdom: Osborne presents 2014 budget amid brighter economic outlook
March 19, 2014
On 19 March, the Chancellor of the Exchequer, George Osborne, presented the 2014 Budget to the Parliament, which followed the Office for Budget Responsibility's (OBR) release of its revised forecasts for the British economy. The OBR revised up its projections for GDP and thus contributed to a brighter picture for expectations of government receipts. In its March Economic and Fiscal Outlook report, the OBR revised up its GDP growth forecasts from 2.4% to 2.7% for 2014 and from 2.2% to 2.3% for 2015. According to the Exchequer, the budget will increase the income tax exemption level, and will also increase and harmonize in the exemption levels for the savings tax on earnings over Individual Savings Accounts (ISA). With these moves, the government expects to increase households' disposable income and buttress savings in order to curb growing household debt figures. The budget also introduces pension reforms, which will double the total pension savings that can be taken as a lump sum and eliminate the need to buy an annuity. The main measure to support business investment will be a reduction in the main corporate tax rate from 23.0% to 21.0% starting in April 2014. The rate will go down to 20.0% in 2015. In addition, the Exchequer announced reductions in the financing cost to firms using public sector funding schemes. To keep supporting the housing sector, the budget projected an extension of the Help to Buy scheme through March 2020. In 2014, the Exchequer expects revenues to be 6.0% higher than in last year's budget, while spending is projected to be 1.6% higher than in the 2013 budget. Consequently, it sees the budget following the consolidation path that began in 2010, but does not expect it to have a significant macroeconomic impact. Meanwhile, some analysts emphasize that the Government is maintaining its contractive stance due to the situation of the UK's public finances. Ross Walker, Senior UK Economist at the Royal Bank of Scotland (RBS) said: The UK's overall fiscal stance is-and is set to remain-moderately restrictive […]. Given that the UK has among the worst public finances metrics in the developed world this amounts to fairly cautious pace of fiscal tightening. The OBR projects a fiscal deficit of 5.5% of GDP this year, and expects it to be reduced to 4.2% of GDP in 2015. Moreover, it projects a 0.2% of GDP surplus for 2018, although in recent years the path to fiscal consolidation has been below 1.0% of GDP per year. FocusEconomics Consensus Forecast panelists are more pessimistic than the government and expect the fiscal deficit to come in at 5.2% of GDP in 2014, which is up 0.1 percentage points over the last month's projection. For 2015, the panel expects the deficit to narrow to 4.2% of GDP.